U.K.-EU Discussions Must Avoid Tyranny of the Veto, Study Says

  • Safeguards are needed to protect U.K. single-market interests
  • EU integration debate hits financial markets, Bruegel says

The European Union’s negotiations with the U.K. raise questions about how to strengthen euro-area financial markets and also safeguard British rights without jeopardizing the currency bloc’s integration, according to a policy report released Thursday.

The 19-nation euro area needs a strong banking union that will lead to more cross-border transactions and fewer national lenders, according to the study by Andre Sapir and Guntram Wolff of the Brussels-based Bruegel research group. This means the EU’s overall single market could fragment by deepening the gap between nations that use the currency and those that don’t, they said.

“It is not only the countries currently outside the euro that need safeguards to protect their legitimate single market interests,” Sapir and Wolff write. “This boils down to creating mechanisms to protect both the minority against the tyranny of the majority and the majority against the tyranny of the veto.”

EU-U.K. talks are ramping up ahead of the Feb. 18-19 summit at which Britain hopes to secure an agreement to keep it in the 28-member bloc. Adhering to that timetable is essential if Prime Minister David Cameron is to call a referendum in June on whether the U.K. should remain in the EU.

Overall, “there are few if any genuine economic forces arising from monetary union that necessarily drive a wedge between euro and non-euro countries in the single market,” the Bruegel study said.

Because the British economy is so closely linked to the rest of the EU, any exit negotiations would need to focus on continued access to the EU’s single market and the conditions that would be attached, the Bruegel study said. If Britain left the EU, its ability to influence new regulations would be limited to intergovernmental agreements, instead of the governance methods outlined in EU treaties.

“The EU will be continuously subject to reforms and changes,” Sapir and Wolff wrote. “This complicates the definition of the relationship between the euro area and the single market because the euro area’s eventual shape is far from being agreed.”

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